Follow Dodo or go the way of the dodo

Dodo may not have the most unblemished customer service record as an ISP, but the entry of this internet survivor into Victoria's retail electricity market marks an important point in the evolution of deregulated markets. Taken to extremes, internet service providers will eventually become just service providers as new networked products let them offer everything from Foxtel to insurance — but can the vision become reality?

It may be under fire for misleading advertising and might not have the best history of internet performance, but Dodo recently added me as a customer after it launched an aggressive push into a new market segment that's just crying out for innovation: electricity.

Turning to an internet service provider (ISP) for electricity may seem like a strange concept, but for the growing number of people suffering ridiculous energy bills through a combination of having too many gadgets sucking down power, and too few electricity retailers controlling access to too little electricity, it's one that I suspect is going to become more common.

Dodo, you see, offers rates comparable to the best of the existing electricity cartel (the result of Victoria's electricity-market deregulation that was, comically, supposed to drive better prices) but offers a 20 per cent pay-on-time discount that puts its effective rates well below those of its competitors. In exchange, customers sign up for a three-year contract and make monthly prepayments against their quarterly electricity bill. This makes sure Dodo won't ever have to chase them for outstanding bills, keeping costs down and customers, presumably, happy.

Now, I'm well aware that Dodo's customer service has been lambasted by many internet customers; I've even taken it to task for less-than-honest marketing in the past. But electricity is either on or off and it's not Dodo's responsibility either way. I figure that if I make its life easier and stay out of its way, it will stay out of mine. I may also regret figuring this, in which case you have permission to scribble "I told you so" on a raw herring and slap me upside the head with it as I scream to be let out of the contract.

That said, I've read the fine print and there's nothing in there that seems unreasonable. The fundamental principle behind Dodo's electricity play is the old — pardon the pun — bird-in-the-hand theory: Dodo encourages customer behaviour that puts money in its hands every month and allows it to keep its administrative costs low, then passes on a good deal of the savings. Its competitors, on the other hand, wear more of the risk in service delivery with quarterly bills, but have to maintain a fatter buffer to absorb the costs when they have to send repeat bills, chase up customers in arrears, write off bad debt, and so on.

Dodo's customer service has been lambasted by many internet customers... But electricity is either on or off and it's not Dodo's responsibility either way.

It's an innovative approach, for the electricity sector at least, that not only puts Dodo's pricing well ahead of its competitors — I checked with my previous provider and it flat-out told me it couldn't do better than a 7 per cent pay-on-time discount — but highlights the service diversification that is going to become essential to survival for ISPs and other service providers in the future.

It is, after all, a crowning glory of the recent push towards deregulation that Dodo is even able to offer electricity services at all: just as server virtualisation separates the server images from the hardware they run on, electricity deregulation has separated the function of selling electricity from the functions of generating and distributing it. Dodo's success or failure in this sector will not be based on its ability to build coal-fired generation plants, but on its ability to lure customers with pricing that's good enough to win them from competitors, and customer service that's good enough to keep them.

The new ISP

So far, let it be said, the Dodo people have been friendly, nice and efficient. Also, the lights are still on. Whether either of these changes in the future, I cannot say. Regardless, however, there's a lesson here for all ISPs — especially those smaller operators who are concerned about their fate in the National Broadband Network (NBN) world, where ubiquitous access to fast broadband will negate any geographical advantages that may have allowed to carve out local niche businesses.

In exactly the same way that all electricity retailers are selling 240-volt, 50-cycle electricity, the open-slather world of the NBN will see the same internet services sold everywhere. And with their core products commoditised, ISPs wanting to expand their businesses will need to compete on price, which will be more than possible if they can, like Dodo, keep internal costs low and construct a billing relationship with customers that puts less money into their hands, but more predictably.

Many ISPs have already done this with telecommunications-related products such as calling cards, wireless internet services and the like. Indeed, the entire base of most ISPs' business revolves around reselling Telstra's ADSL2+ services. Of course, these sorts of discount schemes only work when there's enough market volume to justify them. And with the roster of telecommunications services momentarily exhausted, ISPs will need to look to new industries to offer customers innovative new products that they can access and resell with little incremental cost.

Electricity is an obvious one: since they already have the mechanisms to manage customer relationships, adding new virtual products becomes as easy as adding new virtual servers in your company datacentre. Ditto gas, an area into which Dodo is planning to expand any day now and where increased retail competition can't be but a good thing. Water, perhaps not so much, since the water industry is more tightly regulated and isn't exactly subject to competition just yet.

Since they already have contact centres operating, ISPs could become the point of contact for just about any service you get to your home.

Another certainty is Foxtel — which, as evidenced by Foxtel's recent efforts to push its content to Xbox 360 owners and Telstra customers, is already counting on a broader range of wholesale customers to expand its footprint in the NBN era. Give the NBN a couple of years to get moving, and there's no reason why iiNet, Internode, Dodo and others won't be able to bundle Foxtel with their internet service offerings.

Since they already have contact centres operating, ISPs could become the point of contact for just about any service you get to your home. Dodo is already offering alarm monitoring, for example, which requires little more than some new software and making sure the contact centre is staffed adequately. Insurance products, home loan broking — whatever they can get the skills and regulatory approval to support, ISPs can eventually offer and bundle with their own products.

Of course, competition is a two-way street. If broadband internet is commoditised by the NBN and anybody with big enough customer service bodies can resell it, there's nothing to stop a bank, for example, from bundling a year's internet access with every term deposit to offering a free hosted PABX or managed security services for small- to medium-size businesses conducting their business banking with the institution. Retail giants like Coles and Wesfarmers could do exactly the same: how does a "spend $200 on groceries and get a month of free Foxtel" sound? Heck, Woolworths has already done it with its Everyday Mobile mobile service.

Given its history, I recognise that it's entirely possible that Dodo may find new ways to add pain to the exercise of buying electricity. But looking at a recent bill, it's hard to imagine things getting worse than they already are. Either way, Dodo's electricity gambit is a harbinger of things to come. Widespread competition in these essential service sectors may put the squeeze on ISPs that have relied on mastery of technological minutiae to survive. It will also bring a Darwinian certainty to all sorts of markets by ensuring companies that without good enough pricing and customer service will lose out to those that do it better. Vodafone is experiencing this sort of karmic rationalisation as you read this. In the long term, those ISPs that pursue similar strategies may eventually need to drop the "I" and be referred to just as "service providers"; those that don't learn from Dodo, may just go the way of the dodo.

Am I a dodo for putting faith in Dodo? Or is this long-time industry survivor really setting the pace for the rest of the industry?